Question

The local chapter of the Louisiana Society of CPAs is planning a fundraiser to provide scholarships for accounting students (They really do and you have to apply for them during Fall semester). The committee chairperson, Amy Dupont, CPA, estimates that renting the venue and paying for the sound system and performers and the like would come to $15,000. They plan to charge $50 per person. Variable costs for this function would be negligible.

A. How many people would have to attend for the chapter to raise $21,000?

B. What if the chapter decided to have a cash bar at the event. They estimate that on average that each person would spend $20 at the bar and that the contribution margin ratio would be 50%. How does this change your answer to part A?

Answer 1

A. The number of people required to raise $21,000 is 720. B. The number of people required to raise $21,000 considering the contribution margin ratio is 50% is 1,440.

A. Calculate the number of people required to raise $21,000: The chapter needs to raise $21,000 and it has the fixed cost of $15,000. It charges $50 per seat which is the revenue. The chapter does not have the variable cost, means its sales price will be considered as the contribution margin. Fixed cost + Target profit Sales (in units) Contribution margin $15,000+$21,000 $50 = 720 people Thus, the number of people required to raise $21,000 is 720. B. Calculate the number of people required to raise $21,000 considering the contribution margin ratio is 50%: Sales (in units) Sales (in dollar) Sales per unit (per person) $72.000 $50 = 1,440 people Thus, the number of people required to raise $21,000 considering the contribution margin ratio is 50% is 1,440. Working note: Calculate the sales in dollar: Sales (in dollar) - Fixed cost + Target profit Contribution margin ratio $15,000 + $21,000 50% $72,000 Please take your valuable time and rate the solution as per your convenience.